Less than two years after Standard & Poor's downgraded the U.S. government's credit for the first time, the feds have turned the tables. In a civil lawsuit, the Justice Department accuses the ratings agency of fraud for misgrading bonds backed by crummy mortgages--"liar loans" and such--with sterling AAA ratings to please the bond creators who paid S&P's bills. Credit unions, along with institutions like pension funds, piled into these bonds, which lost value rapidly when real estate markets collapsed, helping ignite the 2008 recession.

S&P, one of several major credit-rating agencies, denies any culpability, and its defense will likely be based...